A personal loan is an unsecured debt that is the loan given without any collateral. Therefore the risk involved for the lender in funding is higher as compared to the secured loans where funds are provided against the security of assets. The lender calculates the risk involved with reference to various factors such as borrower’s credit profile, employment and income information and stability, obligations, etc. These factors determine how likely the borrower will pay back the loan.
Well, nobody likes getting a personal loan with high interest rate. So here are some key strategies that will help getting a personal loan with low interest rates.
1) Ensure to maintain a good credit score and repayment history.
Lenders decide repayment terms, loan amount and the interest rate based on the borrower’s credit score. A score of 750 and above has higher chance of bagging a better deal on personal loan. In order to maintain a good credit score the borrower must ensure timely repayment of loan EMIs (as delay payments or missed EMIs can harm the credit score), avoid direct loan and credit card multiple applications to lenders because each time a lender pulls the borrower’s credit history, it gets noted on his report (which are called as hard inquires) and remain on his credit reports for two years. Having too many hard inquires on the credit report mark negative effect to the credit score.
2) Ensure to make comparisons to bag the best offer.
The borrower must study and compare the rate of interest, fees, tenures, closure conditions, etc of the different lenders before making an loan application. This might take some time but it ensures the borrower makes a right choice. During the festive season, lenders launch attractive schemes/ offers. These offers allow the borrower to get a limited-period discount on the interest rate. It is beneficial to avail the loan at such times.
3) Choose a shorter repayment period.
The longer the borrower chooses to repay the loan, the lender gets more exposed to high risks, and therefore they charge high rates. The longer the tenure, higher are the rate of interest and vice-a-versa.
4) Professional credentials/ Employment history.
Good and steady source of income, working with reputed /multinational companies, etc can gain a low rate for the borrower on the basis of the reputation of the company. This is because the lender is assured that the borrower will have the financial means to make the timely payments of the loan. Therefore the banks demand an employment history of the borrower for at least two years, including one year with his current employer.
5) Other Strategies.
i) Sign up for an automatic payments.
Some lenders offer marginal discounts on the interest rates if the borrower sign up for the automatic payments. This is because the lender assumes that the borrower is more likely to make monthly payment on time.
ii) If possible use collateral.
There are some lenders that offers the borrower with the facility to secure his personal loan with assets such as vehicle, home equity, insurance policy surrender value, or cash in a savings account, investments, FDs, mutual funds, etc. Thus converting the unsecured personal loan to secured personal Loan by providing collateral the borrower can bag a lower interest rate for personal loan.
iii) Add Co-applicant to the loan.
Some lenders allow the co-signers to the loan. A borrower can add to his loan a co-signer with good income and credit history to increase the chances for getting a better interest rate on personal loan. Both will be equally responsible for paying off the loan and the loan will reflect on the co-signer’s credit report as well.
Finding the best rate on a personal loan isn’t difficult if the borrower follows the given strategies.
To conclude: “The less the credit risk a borrower poses to the lender, the better are his chances to get a loan with low rate of interest”. However there exists some factors which are beyond the control of the borrower and he can do nothing about it, for instance change in the Repo rates for banks- if repo rates increases the rate of interest for personal loan also increases and vice-a-versa.
Loanfasttrack is a specialized Loan provider in Mumbai markets with its existence in the Online market since 2015. It offers Home Loan, Mortgage Loan, Personal Loan, Business Loan, Car Loan, Top-up Loans & Loan Transfers.
Ashvani Mishra – founder of Loanfasttrack – Mumbai based company specializing in loan industry offering multiple loan products of Home Loan, Mortgage Loan. Business Loan, Car Loan & Personal Loan.He has considerably vast knowledge in the field of mortgage and home loan industry. She has successfully written more than 100 blogs on finance and on loan industry.